Lovell Minnick Partners LLC is buying a $2-billion wealth manager to kick off a roll-up of trust companies that it can peel away from banks. A roll-up is a company that builds critical mass and a broader geographical footprint by making a series of purchases of smaller companies as part of its business plan.

The Radnor, Pa.-based private equity firm is making its initial play by purchasing Kanaly Trust Co., which will be the brand and nerve center of the venture.

The deal will help the Kanaly family expand in a way that wasn’t possible for the family-run business, says Janet Bandera, senior vice president of National Advisors Trust Co.

Good targets

“You find that these smaller companies are good targets for these private-equity firms,” she says.“These firms are a decent size but they haven’t quite gotten to the economies of scale. Suddenly, if they buy a few more firms, they could be a powerhouse.”

“We like the tradition of the business,” Minnick says. “We think they have a strong history of taking good care of clients and we think they’ve built a strong team of people. We think there is a growing need for the services they provide. We like the fact that they’re an independent business and we like their history of planning and the fact that they take an open-architecture approach and select the best investment managers and products.”

“Clearly, Kanaly has a very good reputation,” he says. “I think there’s plenty of room for independent trust companies not associated with a commercial bank.” Ferguson believes independent companies, such as Kanaly Trust, that focus on helping clients build wealth will do far better than trust companies tied to banks.

Drew Kanaly: We want to translate that brand to the firms that we’ll acquire and roll under the Kanaly brand.

Replicating Kanaly

Drew Kanaly says he wants to grow but also to be certain to replicate his company’s culture at the firms it acquires. “We don’t want to disturb the Kanaly brand. We want to translate that brand to the firms that we’ll acquire and roll under the Kanaly brand. The Kanaly in Houston won’t change one bit.”

Founded in 1975 by Deane Kanaly, who died in 2006, Kanaly Trust has nearly $2 billion in assets, and the Houston-based company also serves as trustee for estates totaling more than $2.5 billion. The firm has 45 employees and offers independent wealth management advice to high-net-worth clients.

Drew Kanaly will remain in his role as chairman of Kanaly Trust and his brother Jeff will serve as vice chairman. Bill Rankin will join Kanaly Trust as CEO at the close of the deal. Rankin has extensive experience in the wealth management industry and was most recently president and CEO of Shelterwood Financial Services LLC.

The Kanaly family decided to bring in a private-equity firm to infuse capital to help the company establish a national footprint. The firm’s brand name will be kept, and company leaders hope to buy five to 10 other trust companies in the next few years — essentially rolling up ones that have been affiliated with banks.

“We always wanted to take Kanaly on a more broad scope and national perspective,” says Drew Kanaly. “We felt that this is the perfect platform to service people in the high-net-worth space. It takes quite a bit of capital and resources to do that. We’ve been very successful here, but it’s been limited to take it nationally.”

National potential

Drew Kanaly thinks that the capital equity muscle can allow his company to compete head-to-head with national trust companies because it has remained independent and doesn’t sell products such as insurance or offer loans, as some of the bank-owned trust companies do.

Minnick says that Kanaly Trust is also well placed geographically. “We think Texas is a wonderful market and it’s attractive,” he says. “We couldn’t think of a better market to enter. We think the business does have national potential.”

Making changes

Kanaly Trust is looking to make investment changes and is hoping to leverage its technology so that the client experience will be very similar to what trust clients receive from the giant national trust companies, Drew Kanaly says.

“We now have the capability to compete with these national trust firms with our technology,” he says. “We want to make changes so that there’s better stuff for client access and client experience. It’ll be far more robust from anything we have now.”

He says his company is still looking at its options but has determined that SEI Investments Co. will be a key vendor.

Strong tradition

Ferguson adds that Kanaly Trust may need to add a national charter or situs advantage charter like Delaware if it intends to expand nationally. Right now, Kanaly has a Texas charter.

The firm could also purchase another firm with a national charter, Bandera says.

Minnick says that the company hopes to build a national brand and will address any regulatory issues as they arise.

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